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Westinghouse Clauses

Westinghouse Clauses

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Westinghouse clauses vest the engineer on a construction project with broad decision making powers, and judicial review of any decision is limited to “the questions of whether or not the engineer’s determination is arbitrary, capricious or grossly erroneous to evidence bad faith”. [1]

If there is any rational basis to the decision made, the court will be compelled to uphold it, and will not consider evidence that was not presented to the decision maker.  The contractual clauses in the Westinghouse case itself provided the engineer on that project with great discretion to make all decisions with regard to the contract.  The contractor was only provided with the ability to challenge said decisions in court with regard to whether the engineer’s decisions were arbitrary, capricious, or grossly erroneous to evidence bad faith.  The Court of Appeals in that case held that a provision in a contract which authorizes an employee of one party to make conclusive, final, and binding decisions on questions arising under the contract still provides for limited judicial review, does not violate New York public policy, and is enforceable.

Absent an explicit and unequivocal agreement in the contract, a project engineer’s decision is not final and binding as to legal determinations.  This holding came down from the Court of Appeals in Thomas Crimmins Contracting Co., Inc. v. City of New York, 74 N.Y.2d 166, 544 N.Y.S.2d 580 (1989), in which the clause in question provided that the engineer would make all decisions with regard to the fulfillment of the contract, including the acceptability and quality of the material used and work completed.  The court found that the clause did not unequivocally and explicitly empower the engineer to decide legal issues such as contract construction, which limited his range of discretion.  Additionally, where the decision is without basis[2], or is incorrect and outside the realm of the engineer’s expertise[3], the contractor may recover for extra work necessary as a result of the decision.

The standard to have an engineer’s decision overturned is a strict one, however, as demonstrated in Maross Const. v. Central New York Regional Transp. Authority, 66 N.Y.2d 341, 497 N.Y.S.2d 321 (1985).  In that case the appellant entered into a contract to construct a liquid handling system in a public bus garage, but prior to signing the contract added a provision stating that he was not responsible for supplying any fiberglass since the drawings said that was the responsibility of the general contractor.  A dispute resolution clause provided that the architect would decide any questions related to the contract and that its decision was to be binding on all parties. The court reviewed the architect’s decision and found that the contract clause gave him unlimited discretion to decide issues of fact and legal interpretation with regard to the contract and that since his decision based on his authority was not irrational, it would be binding on the parties.

[1] Westinghouse Elec. Corp. v. New York City Transit Authority, 14 F.3d 818 (2d Cir. 1994)

[2] Degnon Contracting Co. v. City of New York, 235 N.Y. 481, 139 N.E. 580 (1923)

[3] Joseph Davis, Inc. v. Merritt-Chapman & Scott Corp., 23 N.Y.2d 872, 298 N.Y.S.2d 79 (1969)

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